Guide to Homeowners Insurance Policies

Guide to Homeowners insurance policies

Why You Need Homeowners Insurance

blue icon house with collapse damage
blue icon house with water damage
blue icon house with fire damage

One of the most important protective precautions you can take is to insure your home, possessions, and liability responsibilities with a homeowner’s insurance policy. Homeowner’s insurance acts as a financial safety net for your most valuable asset – your home. It shields you from covering repairs or rebuilding costs if your property is damaged by fire, theft, or other unforeseen events.

Homeowners insurance policies generally cover destruction and damage to a residence’s interior and exterior, the loss or theft of possessions, and personal liability for harm to others. There are many different types of coverage and policies to choose from, so make sure you understand what specifically is covered in your insurance. 

If you’re still deciding on buying homeowners insurance we strongly advise you do so. Ultimately, the type of policy you choose will depend on your budget and priorities. We will give you a general overview of coverages and policies in this resource. 

Read our resource, “Definition of Relevant Property Insurance Terms” to learn more about specific language that might be used in your policy.  

Most Common Types of Property Insurance Policies 

hand holding yellow tiny umbrella over a house, car, and people figurines

Homeowner’s Insurance 

Homeowners insurance is one of the most common types of property insurance policies for homeowners. It typically provides coverage for the home’s structure, personal belongings, liability protection, and additional living expenses if the home becomes uninhabitable due to a covered peril. HO-3 policies are usually based on a “named perils” basis, meaning they cover specific perils listed in the policy.

Renter’s Insurance 

Renter’s insurance is designed for people who rent and do not own. It provides coverage for personal belongings, liability protection, and additional living expenses if the rental property becomes uninhabitable due to a covered peril. Renter’s insurance is essential for protecting tenants’ belongings since the landlord’s insurance typically only covers the structure of the building.

Condo Insurance 

Condo insurance is specifically tailored for condominium unit owners. It provides coverage for personal property, liability protection, and improvements made to the unit. Since condo associations typically have master insurance policies that cover the building’s structure and common areas, condo insurance focuses on protecting the unit owner’s personal property and liability.

Landlord Insurance 

Landlord insurance, also known as dwelling fire insurance, is designed for property owners who rent out one or more residential properties. It provides coverage for the structure of the rental property, liability protection, and loss of rental income if the property becomes uninhabitable due to a covered peril. Landlord insurance is crucial for protecting landlords’ investments and income streams.

Flood Insurance 

Flood insurance provides coverage for damage caused by floods, which are typically not covered under standard homeowners insurance policies. Flood insurance can protect homeowners, renters, and landlords against losses resulting from heavy rain, storm surges, melting snow, or overflowing bodies of water. Depending on your location and flood risk, purchasing flood insurance may be necessary to protect your property.

Different Coverages of Homeowners Insurance  

There are different types of coverage that you can choose from for your insurance policies. The main three types are Replacement Cost Value (RCV), Actual Cash Value (ACV), and Guaranteed (or extended) Replacement Cost. It is crucial to understand which coverage you have and the differences between each one. Here is a table that summarizes the key differences:

key differences in home insurance coverage chart
  • Replacement Cost Value (RCV): This coverage reimburses you for replacing your damaged or stolen items with new items of similar kind and quality, without deducting for depreciation.
  • Actual Cash Value (ACV): This coverage reimburses you for the current value of your damaged or stolen items, taking depreciation into account. As a result, the payout may be lower than the cost of replacing the items with new ones.
  • Guaranteed (Extended) Replacement Cost: This coverage is essentially an enhanced version of RCV. It offers the same benefit of covering replacement costs and protects against increases in costs (surge charges). 

Some advisors feel all homeowners should buy guaranteed replacement value policies because you don’t need just enough insurance to cover the value of your home, you need enough insurance to rebuild your home, preferably at current prices (which probably will have risen since you purchased or built). Guaranteed replacement value policies will absorb the increased replacement costs and provide the homeowner with a cushion if construction prices increase. 

Your decision should depend on how much you want to budget for your premium and what is important for you to replace/repair. 

To learn more about the specifics of RCV vs ACV you can read our blog, “ACV Versus RCV: What Are The Differences?”.

Basic Types of Homeowners Insurance 

A homeowners insurance policy is a bundled policy that combines different types of insurance coverage into one. It typically includes four main components: coverage for dwelling and personal property, personal liability, and additional living expenses.

Dwelling (structure of your home) 

The dwelling coverage provides financial aid for damages to your home and personal items. This also extends to other structures like a detached garage or a tool shed, which are commonly covered for 10% of the house coverage amount.

Personal Property (contents of your home) 

Personal property coverage is for personal belongings such as furniture, clothing, and other items. The coverage amount is typically 50% of the dwelling policy limit. It only pays the current cash value of the destroyed item, unless you have replacement cost coverage.

The policy also provides off-premises coverage, which protects your belongings against theft even when they’re not in your home. It does not cover your pets or any damage they cause to your possessions, but it does cover any injury or damage your pet causes to others or their belongings. 

The homeowner’s insurance policy may offer limited coverage for valuables like furs, jewelry, and silver. These may need to be insured separately with a personal property floater, which itemizes each article, describes what is insured, and lists excluded perils. It often provides broader coverage than standard home insurance policies.

Personal Liability 

Personal liability coverage is included in homeowners policies and covers non-auto accidents on and off your property if they are caused by you, a family member, or your pet. It covers legal defense costs and any damages awarded by the court. There is typically no deductible, and the basic limit is usually $100,000 per occurrence, although higher limits can be requested for an additional cost.

Additional Living Expenses (ALE)

Additional living expenses coverage helps with the cost of temporary accommodation if you need to move out due to damage from a covered risk. Typically, the policy will cover up to 20% of the dwelling policy limit. If you stay with friends or relatives and incur no extra expenses, the insurance company will not pay additional living expenses.

Read, “What to Know About Additional Living Expenses (ALE)” to learn more about how ALE applies to you. 

How Can A Public Adjuster Help?

If you find yourself in need of help while going through an insurance claim, please reach out to a public adjuster. Fortitude Public Adjusters is your go-to Wisconsin resource for the insurance claim process. Our free consultations are a risk-free way to find out whether a member of our team would be able to help you. 

Contact us to get the money you deserve for your damages!

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